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Guardion Health Sciences Inc
NASDAQ:GHSI

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Guardion Health Sciences Inc Logo
Guardion Health Sciences Inc
NASDAQ:GHSI
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Price: 8.92 USD 9.85% Market Closed
Updated: Mar 19, 2024

Earnings Call Transcript

Earnings Call Transcript
2020-Q2

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Operator

Good day. And welcome to the Guardion Health Sciences Second Quarter 2020 Financial Results Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead, sir.

T
Todd Kehrli
MKR Investor Relations

Thank you, Operator. Good afternoon, everyone. And thank you for participating in today’s conference call to discuss Guardion’s financial results for the second quarter 2020 ended June 30, 2020. Joining us today are Guardion’s Interim CEO and Chief Science Officer, Dr. David Evans; and CFO, Mr. Andy Schmidt.

Before we continue, I’d like to remind all participants that during the course of this call management may make forward-looking statements regarding future events or the future performance of the company, which statements are based on current information are subject to change and are not guarantees of future performance.

Guardion is not undertaking an obligation to provide updates to these forward-looking statements in the future. Actual results may differ substantially from what is discussed today and no one should assume that at a later date, the company’s comments from today will still be valid.

Guardion refers you to the documents that the company files from time to time with the SEC, specifically the company’s most recent Forms 10-K, 10-Q and 8-K, which contain and identify important risk factors that could cause actual results to differ materially from those that are contained in any of the forward-looking statements.

I’d like to remind everyone that a webcast replay of today’s call will be available in the Investors section of the company’s website at www.guardionhealth.com.

Now, I’d like to turn the call over to Guardion’s CFO, Andy Schmidt.

A
Andy Schmidt
Chief Financial Officer

Thank you, Todd. Welcome to Guardion’s earnings conference call. I’m the recently appointed CFO for the company. My experience as a public company CFO includes business transitions and creating significant shareholder value as reflected in appreciated share price and market capitalization.

Guardion is at a unique point in its development. The company is proprietary technology. It is gaining a foothold in the ocular health industry. Guardion has been in the technology development phase of its development -- is it -- and is evaluating the next phases.

At this time, I’m going to turn the call over to Dr. David Evans, who has served as the company’s Chief Science Officer and is currently also taking on the role of Interim CEO. David will provide some highlights of our second quarter performance, as well as an update on our business. I will then review our quarterly financial results in more detail. David?

D
Dr. David Evans
Interim Chief Executive Officer and CSO

Thank you, Andy. Thank you very much for the introduction and you’ve only joined the company a month [ph] and I’ve really enjoyed working with you, especially with your background experience and another publicly traded companies.

So, good afternoon, everyone. I really appreciate you listening to us today and it’s a great pleasure to talk to you and thank you for your interest in Guardion Health Sciences. My name is Dr. David Evans and I’ve been involved with Guardion, now it’s been about two and a half years. I’m the Chief Science Officer, now for the last two months, I’m the Interim CEO.

Before I go further into my background, let me first provide the highlights of our financial performance. For the second quarter, I’m pleased to report Q2 revenues of $1.19 million, which is a 356% increase over Q2 last year. The growth was primarily due to a large $890,000 sale of an immune-related formula to a new distributor in Malaysia known as acuMMUNE. acuMMUNE is a subsidiary of a company that’s on the Malaysia Stock Exchange.

Also, our core business report an increase on medical foods product lines, which grew sales 26% during the quarter and these were offset with a 75% decrease year-over-year on our medical device sales during Q2.

A contributing factor to the decline in the medical device sales was the temporary closures of doctors’ offices in the U.S. and abroad, as well as temporary closures of our main distributors in Asia and Europe.

Now, let me share some my background. I joined Guardion Health Sciences in 2017 when Guardion acquired VectorVision. VectorVision was a 30-year old company I have founded and built into a worldwide recognized brand for patented vision testing device. As an aside, I’m an Air Force Academy graduate and I did many -- much of the early research in this technology when I was in the NorthStar [ph].

And when I -- a number of years ago I transitioned this technology to the clinical space and I’ve been interested in the impact of ocular health for more than 25 years and how ocular health could be measured with more sensitive ways of visual function, like, I helped to publish one of the early papers about 16 years ago, I showed that patients with early macular degeneration improved visual function as measured by contrast semi [ph] technology provided by VectorVision after treatment with certain types of nutrients, as it turns out more than nutrients in that early paper with lutein, which is one of the key components of our current formula that I’ll talk about today.

And one of the reasons I joined Guardion, because I’m personally very excited about its promising position in nutraceutical market. So I personally have worked in the eye care industry for 40 years and I sit on an FDA committee that oversees the protocols used in FDA clinical trials and I’ve seen personally many advancements in eye care.

So our advanced nutritional formulas are helping eye health of patients and the benefits of these improvements or changes in vision for the patients are measurable through our diagnostic devices.

And if you’re interested in viewing patient comments or how they’re doing on our formulas, please review the patient testimonials on our website guardionhealth.com, the same website that Todd mentioned earlier.

So during Q2, we received our first published paper in May 2020, which compared to our formula with the industry leader, the AREDS2 standard gel caps. This is the AREDS2 you can buy down at CVS or Walmart. And the results show for our formula 300% to 400% higher absorption in the blood of our key ingredients and the thickening of the macular pigment in those treated with our proprietary formula magazine. This is as compared to the AREDS2 off the shelf gel cap, which is the industry leading formula.

This means our liquid lipid based formula is much more effective when getting into the blood and providing benefit to the eye as compared to the over-the-counter gel caps. And we’re very excited by these results and we’re initiating new studies at several universities to further validate our product and establish the benefit across a wider patient base. We feel that the -- when establish other patients that may benefit from our formula.

And one of the recent press highlighted in one of the ophthalmology trade, perhaps, called Ophthalmology Management, which was published this month, talked about the benefits of our formula and also discusses the various pipelines and how they synergistically fit together, basically, that we have these outstanding formulas and we can measure the results with our diagnostic devices and you can read this article, it’s listed on our website.

And now I will go to our medical devices as we disclose in our recently issued Q -- 10-Q. The company has made the decision to discontinue our Trans-Cranial Doppler product and reduce costs -- to reduce -- primary to reduce costs and so -- also to focus the resources on our VectorVision opportunity and the opportunities for other product in the medical foods and nutraceuticals.

And then after the new CSV-2000 product VectorVision, which we first announced early in the year, what we do is bring new capabilities in the marketplace. The CSV-2000 is digital vision testing device that auto calibrate the controls to standardize the testing level. We have two very broad patents that protect this technology. But this product is now commercially available both domestically and internationally, and we actually introduced this on our first CSV-2000 at the end of the first quarter 2020.

As described in the article I mentioned earlier, the CSV-2000 fits synergistically with our medical foods, as the testing technology is able to directly measure the benefits of the formulas on eye health. So we have a very unique model, we’re able to treat, test and show the benefits of our formula is very unique in the marketplace.

So now I’d like to call on Andy to walk everybody through our financial results of the second quarter. Again, I appreciate you being here today and thanks for your attention.

A
Andy Schmidt
Chief Financial Officer

Well, thank you, David. At the close of the market today, we issued our financial press release, which includes our current period and year-to-date financial statements, management’s discussion of results and other commentary.

We also filed our Q2 10-Q for 2020, which provides significant financial information and disclosure. As this information is available to investors, as I speak, let me focus on highlights that I feel can be additive to what’s already been provided or that needs added emphasis.

First off, let me review our business segmentation. Guardion currently is organized these two segments, the key revenue producing segments being medical devices and medical foods and nutraceuticals.

A key driver to the medical devices segment is sales of VectorVision products. While a smaller segment, historically, sales of VectorVision products have had an important strategic value for Guardion.

VectorVision’s product line has become a recognized standard for FDA clinic trials, which require standardized contrast sensitivity testing to evaluate new optical device treatments and it is also used for many practices for the cataract patients. As David noted, this technology will also play a significant role in objectively measuring the visual benefits associated with our medical foods.

From a modeling perspective, medical device sales have historically been a one-time sale. That said, as David discussed, we have launched the new version of the VectorVision product lineup, the CSV-2000, which was introduced in the market in March 2020.

As reported in our current 10-Q, gross margins for medical devices segments were 63% for the six-month ended period 2019 and 56% for the six-month period ending 2020. The decrease in gross margin is due to lower unit sales in the current period, as well as product mix.

Our medical foods and nutraceutical segment gross margin segment were 61% for the six-month ended period 2019 and 47% for the six-month ended period 2020. The decrease in gross margin is due to the large Malaysian order, which was priced at the distribution or volume pricing.

In general, gross margins for this segment are subject to pricing differentials between larger distribution orders or direct-to-consumer orders, as well as fluctuations in the costs of product materials and other production costs.

Corporate expenses include public company costs, as well as cost of basic corporate infrastructure. Considering current period results, at our current size, both revenues and expenses will be lumpy.

Current period revenue of $1.2 million is a significant improvement over last year’s $261,000. Much of the year-over-year improvement is related to the single sale to a Malaysian distributor that David discussed.

At this point of our development, we did not expect to land deals of this size on a quarterly basis. However, in terms of recurring and new sales of our medical foods, we saw a 26% year-over-year increase for the current period.

Medical Device sales were down 76% this period, primarily due to COVID-19 stay-at-home orders, which resulted in doctors’ offices, as well as distributors being closed for much of the quarter.

Now expenses, as I said, will likewise be lumpy going forward, while operating expenses dropped this quarter from $2.98 million to $1.25 million. The accounting regarding the past CEO resignation netted a non-cash benefit to the P&L of $1.05 million. The accrued salary portion of this event is $325,000, which is cash based and approximately $311,000 remains to be paid post June 30, 2020.

We have added a new footnote to our 10-Q, Footnote 8, as well as additional line items to our P&L and balance sheet to help clarify the effect the CEO resignation had on our financial statements.

Another notable non-recurring cost this period were fees of approximately $250,000 for consultants utilized for providing insights into our current products and helping us lay the groundwork to develop our go-forward business strategy and plan. We will continue to provide transparency regarding our expenses and our filings and discussions going forward.

In terms of cash flow, year-to-date, we’ve used approximately $4 million in cash. Approximately $607,000 was used to build inventory, which currently sits at a balance of $1.24 million. The inventory value on the balance sheet is carried at net realizable value and will support sales over the coming quarters. We did benefit from the exercise of warrants this fiscal year, which produced $4.55 million year-to-date, leaving us at an ending cash balance of $11.6 million at June 30, 2020.

At this point, that concludes my prepared remarks and I’ll turn the call back to David. David?

D
Dr. David Evans
Interim Chief Executive Officer and CSO

Hey. Thank you, Andy. Appreciate that detail. In closing, we want to reiterate how excited we are about these two stages development. Guardion has proprietary technology. It is gaining a foothold in the ocular health industry. I look forward to sharing our progress in the market in the coming quarters. That -- this concludes our today’s call. Thank you very much.

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